How much do you need to invest to become a Millionaire?

By Dale Roberts

Special to Financial Independence Hub

There was a time when becoming a millionaire was a big deal. That meant that you were “rich.” These days, becoming a millionaire might be commonplace for an investor with modest or reasonable free cash flow to invest. Most of us should become “rich.”

But of course, a million dollars ain’t what it used to be. The Bank of Canada inflation calculator suggests that in 2024 you’d need $1.87 million to have the spending power equivalent of $1 million in 1994. That said, stocks historically beat inflation over longer periods, and that is the path to wealth creation. How much do you need to invest to reach your financial goals?

Canadian rock band The Barenaked Ladies had a massive hit with their song – If I had a million dollars. I don’t think they adjust for inflation to now sing: If I had $1.87 million dollars.

Keep inflation in mind. To compensate you will increase contributions as your income increases and as you eliminate debt.

Here’s a chart shown on BNN. I took a pic and posted on Twitter / X.

Find that free cash flow

You’ll need to find the money to invest on a regular schedule. That takes a free cash flow plan, and that would usually include a personal and family budget. We need to know how much we’re spending and where. In the end we need to spend much less than we make. The financial planning basics would include paying off high interest debt and keeping your spending in check. You’ll see in that post that I found $888,000 in your takeout coffee (and other discretionary spending).

And here’s a good post on financial planning basics from Get Smarter About Money.

Those incredible stock markets

Here’s a good share from Dan at Stocktrades.

That post shares the incredible gains that have been available. Another key message is that we have to stay the course and stay invested. We add money on a regular schedule. The positive years and decades greatly outweigh the years and decades of negative returns. We don’t guess. We can’t time the stock markets.

Time and patience and consistency are your greatest weapons.

Volatility is the price we pay

We have to accept that roller coaster ride knowing that incredible wealth waits on the other end. It is key to understand market volatility. That chart shows that, on average, we’ll face a 10% correction every year, and a 15% correction every other year. Every decade or so, stocks can fall by 35% to 50% or more.

And we must invest within our risk tolerance level. You can still invest in stocks if you have lower risk tolerance, but you would simply build a lower volatility (lower risk) portfolio.

GIC rates up to 5.35% at EQ Bank

To do so, you’d add bonds and cash and other defensive assets. A typical balanced portfolio is 60% stocks and 40% bonds.

How to create that millionaire portfolio

Fees are wealth destroyers. Here’s my page on why it is crucial to keep your investment fees low. Canadians pay some of the highest investment fees in the world.

Larry Bates, the author of Beat the Bank, offers an investment fee calculator on his site.

Don’t give away half of your investments – Beat The Bank.

The most simple (and wonderful) solution might be the all-in-one global asset allocation ETFs. Those are well diversifed portfolios at various risk levels with total fees in the 0.20% to 0.25% range.

You can create a Canadian ETF Portfolio and lower your fees even more.

If you do need advice and financial planning with fees much lower than the tradition mutual fund route check out Justweatlth.

You might use an advice-only planner and then create your own ETF or stock portfolio. But if you’re young, you likely don’t need a planner, put in the hours necessary to understand the investment basics.

You might start with what is index investing?

How much do you need to invest:  Final thoughts

I often write that wealth building should be one of the most simple and rewarding things we do in life. Studies show that wealth building can build happiness and peace of mind. It is the gateway to financial freedom.

Start as early as you can. Younger readers should ecstatic to see that chart at the beginning of this post . Imagine if you just maxed out that TFSA account for starters. You’ll become a millonaire and much more in tax-free dollars.

And if you’re a late bloomer, no worries. You can use your RRSP and TFSA to play portfolio catch up.

I hope this post inspires you to build wealth using low-fee options. Please share this post with friends and family, and especially your younger kids and nephews and nieces.

And please feel free to reach out with any questions, use that Contact Dale button at the top of the page. I truly enjoy chatting with readers and helping them build wealth.

Thanks for reading – you current and future millionaires and multi-millionaires.

Dale – Chief Disruptor at Cut The Crap Investing.

Dale Roberts is the owner operator of the Cut The Crap Investing blog,  and a columnist for MoneySense. This blog originally appeared on Cut the Crap Investing on May 2, 2024  and is republished on the Hub with permission.